NSWExtending Your Enterprise

CASE STUDYBANKING AND FINANCE

THIS IS OUR STORY OF CO-CREATING A SOLUTION

WITH A LEADING U.S. BANK

CO-CREATION LEADS TO AUGMENTED MODEL RISK MANAGEMENT FUNCTION

CO-CREATION LEADS TO AUGMENTED MODEL RISK MANAGEMENT FUNCTION

As we know…

The Dodd-Frank Wall Street

Reform and Consumer Protection

Act requires the U.S. Federal

Reserve (FED) to conduct annual

stress tests of large banks.

Comprehensive Capital Analysis

and Review (CCAR) and

Dodd-Frank Act Stress Test

(DFAST) are outcomes of the

Dodd-Frank Act.

Failure on the part of banks to

comply with CCAR and DFAST leads

to heavy fines. It also has an

adverse impact on the brand

image.

The FED established the model

validation council in 2012. The

council is tasked with the role of

rigorously assessing the models

used in stress tests by banks.

These stringent norms and

timelines put pressure on banks

and their model risk management

function.

The challenge for the bank was…

It had over 200 diverse models

spread across varied product

categories. To comply with CCAR

and DFAST requirements, the bank

had to conduct stress tests

leveraging its existing model

validation framework and subject

all its models for periodic reviews

and validation.

Faced with a shortage of talent,

assessing and validating the

accuracy of existing models at

regular intervals was a daunting

task. The bank partnered with WNS

to augment its model risk

management function by

leveraging a team of statistical

experts and industry best

practices.

Here’s what we co-created as a solution…

WNS leveraged its analytics

expertise to build a sophisticated

framework to validate the accuracy

of models that were similar to the

client’s existing models. The

framework entailed:

§Single and multi-step back

testing

§Co-integration testing

§Sensitivity and scenario analysis

Multiple validation and scoring

methods were deployed to improve

the bank’s modeling standards.

Detailed validation reports were

prepared for each model to

highlight the shortcomings.

WNS performed stress testing on

the models using macroeconomic

variables and assessed the impact

of stress scenarios on the bank’s

capital and profitability. The stress

scenarios were in accordance with

CCAR and DFAST norms, and the

client’s risk management policies.

In collaboration with the bank,

WNS also built models for Loss

Given Default (LGD) and these were

used as references for the client’s

existing LGD model.

BANKING AND FINANCE CASE STUDY

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WNSExtending Your Enterprise

Our learnings and outcomes from the process of co-creation are…

That the models helped improve

decision-making and risk

management. The bank was able to

discard and replace models that

were not performing well. The WNS

validation reports enabled the bank

to recalibrate its statistical

approaches and enhance the model

validation standards.

The enhanced standards have

enabled the bank to comply with

CCAR and DFAST submissions

since 2015 with ease. WNS has also

been working extensively to

improve the bank’s model

governance through bespoke

projects including:

§Grading the models based on

various micro and

macroeconomic conditions

§Checking the relevance of the

variables used in the models

§Overall model inventory

management

COPYRIGHT © 2018 WNS GLOBAL SERVICES | WNS.COM

WNS (Holdings) Limited (NYSE: WNS) is a leading global Business Process Management (BPM) company. WNS offers business value to 300+ global clients by combining operational excellence with deep domain expertise in key industry verticals, including banking and financial services, consulting and professional services, healthcare, insurance, manufacturing, media and entertainment, retail and consumer packaged goods, telecommunications and diversified businesses, shipping and logistics, travel and leisure, and utilities and energy. WNS delivers an entire spectrum of business process management services such as customer care, finance and accounting, human resource solutions, research and analytics, technology solutions, and industry-specific back-office and front-office processes. WNS has delivery centers world-wide, including China, Costa Rica, India, the Philippines, Poland, Romania, South Africa, Sri Lanka, Turkey, UK and US.

To learn more, write to us at marketing@wns.com or visit us at www.wns.com

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